Essays in asset pricing.
Item
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Title
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Essays in asset pricing.
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Identifier
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AAI3169981
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identifier
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3169981
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Creator
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Shi, Zhihong.
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Contributor
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Adviser: Christos Giannikos
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Date
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2005
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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This dissertation consists of two distinct models. The first model offers a detailed study of the interaction between durability and habit formation and their impact on asset pricing. The second model is a brief inquiry into the effects of power risk aversion in a dynamic asset pricing setting.;In the first model, we study a representative agent pure exchange economy with two goods, one durable and one perishable. The representative agent's preferences are habit forming and defined over perishable good consumption and the service flow from the durables, which is produced according to a linear technology. Thus his past consumption patterns affect his current utility directly through the service flow from the durable good and indirectly through his habit persistence level on both goods. We find that the two goods economy leads to more realistic levels of habit formation in justifying the high premium observed in the U.S. data. Durability also helps significantly to reduce the volatility of the risk-free rate. Hence the combination of durability and habit formation in a two-goods model is a, more consistent with U.S. data, representation of reality.;In the second model, we consider a pure exchange economy with a Power Risk Aversion (PRA) utility. Shorter simulated consumption paths and low relative risk aversion lead to a reasonable equity risk premium and improved the correlation structure of returns. These results may, for example, imply that countries with different levels of GDP or different histories of consumption growth may have different equity premium structures.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
